The second release of the EIA’s new monthly Drilling Productivity Report (DPR) for November came out on Tuesday (November 12, 2013) showing December natural gas production is expected to increase in four of the six regions covered. But one region alone – the Marcellus – accounts for 76 percent of natural gas production growth. In fact if the Marcellus were a country it would rank 5th in world gas production – ahead of Qatar. The DPR provides a breakdown of rig productivity and production from new and legacy wells and includes access to historical data back to 2007. Today we continue our review of the latest Energy Information Administration’s (EIA) report.
In the first part of this series (see A Better Forecast of Drilling Rig Productivity) we looked at summary data from the first EIA monthly DPR report for October 2013 that details oil and gas drilling productivity in six of the largest US production basins. Today we take a detailed look at data in the November report for the Marcellus region of Pennsylvania and Ohio – by far the most rapidly growing gas-producing region in the US with estimated production in December 2013 (according to the DPR) of 12.9 Bcf/d - up 0.4 Bcf/d over November (12.5 Bcf/d). We have previously written extensively on Marcellus production and its impact on the natural gas market (see for example our series “The Marcellus Changes Everything” and more recently How Marcellus Forecasts Changed the World Sooner than we Thought). Frankly the scale of Marcellus production is beginning to defy superlatives but one statistic we saw recently caught our attention. If the Marcellus were its own country then its production (based on 2012 volumes) would rank fifth–ahead of Qatar and close enough to Canada (15 Bcf/d) to catch up in a couple of years. Wow!
After the summary page (that we covered last time), the DPR report contains a page of data on each of the six regional basins (Eagle Ford, Bakken, Permian, Marcellus, Haynesville and Niobrara). Today we will walk through the latest Marcellus data to introduce you to what the report provides. The statistics for each basin follows the same format so we are not going to go through all six one-by-one you may be glad to hear.
The first section of the DPR Marcellus regional section shows estimated rig productivity. We defined the DPR rig productivity measure in the previous post in this series as follows:
“The rig productivity measure starts with an estimate of crude and natural gas output from new wells in a region during their first month in production. Rig productivity (calculated separately for oil and for gas) is that new well output divided by the number of drilling rigs in the region.”
For the Marcellus oil rig productivity estimates are on the left and the gas numbers to the right at the top of the report section (see Figure #1 below). The estimates indicate how much oil or gas is expected to be produced from new wells per average drilling rig in the region for the current and following months. To produce these estimates, EIA use recent weekly active drilling rig count data from Baker Hughes to produce a monthly average rig count for all oil and gas rigs in the region. They then use several months of new well production (the first 30 days output) divided by the region’s monthly average rig count – lagged by two months - to arrive at monthly additions of oil and gas from one rig. The two-month lag in the rig count data reflects the time between drilling and production. EIA's approach does not distinguish between oil-directed and gas-directed rigs—it counts all active rigs—because once a well is completed, it may produce both oil and gas. The Marcellus data in the November 2013 report indicates that gas productivity per rig increasing by 118 Mcf/d (versus 160 Mcf/d in the October report) and oil up by a mere 2b/d (the same as October).
Figure #1. Source: EIA (Click to Enlarge)
The DPR measure of rig productivity is more meaningful than just looking at raw rig count data because it takes production into account as well as drilling time.